Yamato
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Yamato
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20110908 - YouTube
I changed the soundtrack. The previous one wasn't good enough. Only minor changes in the video editing.
I changed the soundtrack. The previous one wasn't good enough. Only minor changes in the video editing.
I am doing something similar...but be careful with optimisation. For me, a system to be robust, its got to work on any instrument in any time frame - something I havent been able to achieve. For eg, my equity curve looked respectable on 15min eurusd, eurjpy and audusd. Then when I tried it on eurusd 60 min, it was a disaster, pretty much every trade was a loser and the equity curve was pointing south with a 45 degree slope!!
Once the same script gives you reasonable equity curves on anything you test (from fx to corn!), then one can be confident and automate it...
Good luck guys...
Yamato
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18 days of drawdown
We hit a low of minus 30k, which is not even that much, considering that my systems, like all systems, perform worse in the future than in the past and that the relativized max drawdown is 26k.
The equity line does look quite bad, but this is entirely due to having quadrupled capital at the peak of the equity line.
Needless to say, like I repeat each time, if EUR and ES both fall, it's unlikely that my systems will make money, because they're mostly positively correlated to those futures.
According to our agreement, if there's another week like this one, and therefore we go below zero profit, it is all over. At this point, I really cannot say whether it is unlikely that we'll go below a profit of zero. All it takes is another week like this one. It's not unlikely at all.
But I am on vacation and very relaxed. Or rather, I am "relaxed" by my usual standards. So I am not feeling the pressure from the drawdown. I can basically say that... in a pretty carefree tone... that I would be surprised if we don't go below zero. I would be surprised in a positive way, and I am hoping to be surprised. But right now my worry is to swim long enough each day and recover some strength from spending two years leaning on my computer screen. I am definitely not losing any sleep over this endless drawdown and this is very unusual for me. I used to lose sleep over much smaller issues related to my systems.
So, obviously this is a good place to be, given that it helps me relax so much that I am not losing sleep over the drawdown.
Actually, I have started seeing problems and sources of unhappiness here as well. Right now I am starting a fight with a neighbour, a compulsive obsessive fight, like all my fights for justice. This guy has fenced his property in a way that no one had before, by closing all paths to the sea. He does not own the sea, nor the rocks around it, and he cannot keep anyone from reaching it. He knows he's wrong. But he's overbearing, selfish, and he relies on the law being very slow and harmless. If we're lucky, in 3 years the authorities will tell him to get rid of the fence, and he won't even be fined. So we won't be able to go to our favorite olace for 3 years due to this asshole. Unless we swim to it, of course, which I am doing every day.
But it's not the same. I can go to it, but my parents can't do it. And they'll have to go to a crappy beach, with dozens of people around them. I hate that. I hate being around crowds of rude people, which is usually the case with people at the beach. This is really unfair and an abuse. I am not going to do it, nor suggest it, but I hope someone goes there and reacts with another abuse, such as blowing up the fence with dynamite. That's what I have been hearing: here the law is harmless, and people take justice into their own hands.
I could have adopted a different attitude, such as: "let's not worry about it, others will take care of this". It might have been the rational thing to do. It is. It is like not voting. Your one vote does not matter. But then, out of principle, you go and cast your vote. All my relatives are upset at this guy, so I am taking it personally.
We hit a low of minus 30k, which is not even that much, considering that my systems, like all systems, perform worse in the future than in the past and that the relativized max drawdown is 26k.
The equity line does look quite bad, but this is entirely due to having quadrupled capital at the peak of the equity line.
Needless to say, like I repeat each time, if EUR and ES both fall, it's unlikely that my systems will make money, because they're mostly positively correlated to those futures.
According to our agreement, if there's another week like this one, and therefore we go below zero profit, it is all over. At this point, I really cannot say whether it is unlikely that we'll go below a profit of zero. All it takes is another week like this one. It's not unlikely at all.
But I am on vacation and very relaxed. Or rather, I am "relaxed" by my usual standards. So I am not feeling the pressure from the drawdown. I can basically say that... in a pretty carefree tone... that I would be surprised if we don't go below zero. I would be surprised in a positive way, and I am hoping to be surprised. But right now my worry is to swim long enough each day and recover some strength from spending two years leaning on my computer screen. I am definitely not losing any sleep over this endless drawdown and this is very unusual for me. I used to lose sleep over much smaller issues related to my systems.
So, obviously this is a good place to be, given that it helps me relax so much that I am not losing sleep over the drawdown.
Actually, I have started seeing problems and sources of unhappiness here as well. Right now I am starting a fight with a neighbour, a compulsive obsessive fight, like all my fights for justice. This guy has fenced his property in a way that no one had before, by closing all paths to the sea. He does not own the sea, nor the rocks around it, and he cannot keep anyone from reaching it. He knows he's wrong. But he's overbearing, selfish, and he relies on the law being very slow and harmless. If we're lucky, in 3 years the authorities will tell him to get rid of the fence, and he won't even be fined. So we won't be able to go to our favorite olace for 3 years due to this asshole. Unless we swim to it, of course, which I am doing every day.
But it's not the same. I can go to it, but my parents can't do it. And they'll have to go to a crappy beach, with dozens of people around them. I hate that. I hate being around crowds of rude people, which is usually the case with people at the beach. This is really unfair and an abuse. I am not going to do it, nor suggest it, but I hope someone goes there and reacts with another abuse, such as blowing up the fence with dynamite. That's what I have been hearing: here the law is harmless, and people take justice into their own hands.
I could have adopted a different attitude, such as: "let's not worry about it, others will take care of this". It might have been the rational thing to do. It is. It is like not voting. Your one vote does not matter. But then, out of principle, you go and cast your vote. All my relatives are upset at this guy, so I am taking it personally.
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Yamato
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Yep. Things are going worse than ever.
We're losing 3000 for the day, and we're only 4000 away from giving up.
Who knows what will happen. This could be my last week of trading.
In other words, at one point we had made 37k, then we scaled up, quadrupled investment, and we've immediately and very quickly lost 33k (in four weeks) of that profit of 37k. Now there's only 4k keeping us in the game.
On the other hand, I am on vacation. The muscles are growing, the belly is shrinking, and I am feeling great. Swimming about 5 hours every day.
We're losing 3000 for the day, and we're only 4000 away from giving up.
Who knows what will happen. This could be my last week of trading.
In other words, at one point we had made 37k, then we scaled up, quadrupled investment, and we've immediately and very quickly lost 33k (in four weeks) of that profit of 37k. Now there's only 4k keeping us in the game.
On the other hand, I am on vacation. The muscles are growing, the belly is shrinking, and I am feeling great. Swimming about 5 hours every day.
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Yamato
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Unbelievable. Here's what today's bloodshed looks like:
This means it is going to be all over, any time now. Any time the investors say so.
We're down 7000 dollars for the day, which means we've lost every dollar (37k) made in the last year and a half of trading.
Still, I am feeling ok, because I am on vacation. Actually I am worried about my arm, hurting a little bit, from too much swimming. I might have to skip my afternoon swimming session. I don't wanna break anything.
Anyway, this is it. 19th day of drawdown, 19th day of falling, and we're already at the end of our trip. This is either the bottom or it's all over. There's still a few hours to go, so it might recover, but. even if that happens, if we have another day like this, it's all over.
The maximum historical drawdown of this combination was 17k. The maximum relativized (with today's prices) drawdown was 27k. Now we're at 37k. Yes, the systems perform worse in the future than in the past. But I am going to accept it peacefully if they decide that their capital is not safe and it's time to quit the game. I mean, this is a huge drawdown. It's more than twice as big as the maximum historical drawdown.
[...]
I've just checked it again, and now we're losing almost 9000 dollars. Which means we're 2000 dollars below where we started and at a drawdown of 39k.
This tells us: "beware: the future is always worse than the past, by at least 50%". At least regarding my systems.
Anyway. It's over. I mean: just a few hours to go, and if it stays like this or doesn't change drastically, I'll have to ask my dad for his money, which he offered to me recently. I wonder if he'll still give it to me, knowing what happened to this equity line.
Just 5 more hours to go, and we will know if one year of profit has been wiped out (in a month) or if we're still in the game.
Either way, I am on vacation, so I can take this disaster without even scratching my head once.
This means it is going to be all over, any time now. Any time the investors say so.
We're down 7000 dollars for the day, which means we've lost every dollar (37k) made in the last year and a half of trading.
Still, I am feeling ok, because I am on vacation. Actually I am worried about my arm, hurting a little bit, from too much swimming. I might have to skip my afternoon swimming session. I don't wanna break anything.
Anyway, this is it. 19th day of drawdown, 19th day of falling, and we're already at the end of our trip. This is either the bottom or it's all over. There's still a few hours to go, so it might recover, but. even if that happens, if we have another day like this, it's all over.
The maximum historical drawdown of this combination was 17k. The maximum relativized (with today's prices) drawdown was 27k. Now we're at 37k. Yes, the systems perform worse in the future than in the past. But I am going to accept it peacefully if they decide that their capital is not safe and it's time to quit the game. I mean, this is a huge drawdown. It's more than twice as big as the maximum historical drawdown.
[...]
I've just checked it again, and now we're losing almost 9000 dollars. Which means we're 2000 dollars below where we started and at a drawdown of 39k.
This tells us: "beware: the future is always worse than the past, by at least 50%". At least regarding my systems.
Anyway. It's over. I mean: just a few hours to go, and if it stays like this or doesn't change drastically, I'll have to ask my dad for his money, which he offered to me recently. I wonder if he'll still give it to me, knowing what happened to this equity line.
Just 5 more hours to go, and we will know if one year of profit has been wiped out (in a month) or if we're still in the game.
Either way, I am on vacation, so I can take this disaster without even scratching my head once.
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megamuel
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Wow. That was an abrupt ending! One yeah profit wiped out in a month. I'm glad you are ok with it! You seem very relaxed which is great, glad you are enjoying your holiday.
Thanks to you (and DDI) for the replies to my previous post. In summary, I was being lazy/impatient and did not test the systems properly. I.e. Using the in sample and out sample. Silly me. But it doesn't matter now because I have decided using the systems on the 30 min charts does not give enough trades for me to be confident of their performance. Although, a few results do warrant a further look. For example, the system on the AUD/USD looks quite promising. Here is the summary:
I know profits are not amazing but that is just trading at 0.1 lots. Anyway, for now I have decided to move down to 15 mins and test with in/out samples like you said.
Quick question though. Say I'm optimizing over the first 5 years and then back testing on the next 5 years and I find settings that are profitable on the out sample. How is that better than say, just optimizing over 10 years? I mean, settings that I pick may well be the same ones that would do well in a 10 year optimization. I guess what I am asking is - Even using the in/out samples, could the system still be curve fit?
Anyway, testing on EUR/USD 15 mins now and so far I have 5 candidates that have performed well in both samples. I am testing every set in the optimizations with a drawdown below 10%, over 100 trades and over £1000 profit. Maybe I'll test up to 15% drawdown.
So, what's next for you if the investors withdraw their funds?
Sam.
Thanks to you (and DDI) for the replies to my previous post. In summary, I was being lazy/impatient and did not test the systems properly. I.e. Using the in sample and out sample. Silly me. But it doesn't matter now because I have decided using the systems on the 30 min charts does not give enough trades for me to be confident of their performance. Although, a few results do warrant a further look. For example, the system on the AUD/USD looks quite promising. Here is the summary:
I know profits are not amazing but that is just trading at 0.1 lots. Anyway, for now I have decided to move down to 15 mins and test with in/out samples like you said.
Quick question though. Say I'm optimizing over the first 5 years and then back testing on the next 5 years and I find settings that are profitable on the out sample. How is that better than say, just optimizing over 10 years? I mean, settings that I pick may well be the same ones that would do well in a 10 year optimization. I guess what I am asking is - Even using the in/out samples, could the system still be curve fit?
Anyway, testing on EUR/USD 15 mins now and so far I have 5 candidates that have performed well in both samples. I am testing every set in the optimizations with a drawdown below 10%, over 100 trades and over £1000 profit. Maybe I'll test up to 15% drawdown.
So, what's next for you if the investors withdraw their funds?
Sam.
Yamato
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Replying as I read.
Yes, I am relaxed. At least by my standards. Here there's all these relatives of mine and if there's an asshole parking the car where he's not supposed to, there's going to be a bunch of relatives complaining before I even notice it. Great advantage being around your relatives. Let alone the swimming and the fact that I am not going to the office every day. Plenty of reasons to be happier or at least more relaxed.
Yes, good point: must use the out-of-sample.
Yes, your system looks good (cfr. image you posted). Wait. It only looks good if you did not optimize over the whole sample available. Otherwise it's not reliable. There's a 50% chance that it doesn't work at all, if you haven't used the out-of-sample methodology.
How is it better? You can always find a combination of parameters that make you come up with a profitable system, once you know the past. The only way you can prevent yourself from cheating and finding that profitable combination is to keep a part of your sample hidden. It is the same as filling the crosswords puzzles after looking at the answers and doing it without looking at the answers. If you know the whole sample, and you optimize any parameter, it is like cheating. Trust me, I have seen plenty of systems that looked and felt excellent fail throughout the out-of-sample, whereas they had succeeded throughout the in-sample.
The out-of-sample obtained system could still be a brute-forcing combination, but the probability then goes from 100 trials to just 1. You have a set of parameters that work on the in-sample, you think they are good and balanced and you decide they are final. Then you test it on the out-of-sample. If it works, it could still be "lucky", but not as much as if you had tested 100 or more different combinations on it. So you practically reduce the risk by 99%, at least.
Good luck with your testing. As far as you told me, I think you're doing it right.
Yes, that is likely the case. The next thing is asking my father, who had told me he'd give me the money. Who knows if he'll still be eager to do that, once he sees my equity curve going from 37k to zero. Then there's another guy who had told me he was interested. I could do both at the same time. Maybe I'd only ask my dad 30k, and do 100k for that other person. Or maybe neither will give me any money. Or maybe the investors will stick to my systems, despite their awful performance of the last 4 weeks.
[...]
Losing 10k for the day. In one day we're losing more than we ever lost before. Anyway. Now we're at -3000. It is definitely all over as soon as the backers will decide so. Probably even today. This new combination had a max historical drawdown of 17k, a relativized max historical drawdown of 27k and it lost us already 40k. Enough reasons to reach "uncle point".
Yes, I am relaxed. At least by my standards. Here there's all these relatives of mine and if there's an asshole parking the car where he's not supposed to, there's going to be a bunch of relatives complaining before I even notice it. Great advantage being around your relatives. Let alone the swimming and the fact that I am not going to the office every day. Plenty of reasons to be happier or at least more relaxed.
Yes, good point: must use the out-of-sample.
Yes, your system looks good (cfr. image you posted). Wait. It only looks good if you did not optimize over the whole sample available. Otherwise it's not reliable. There's a 50% chance that it doesn't work at all, if you haven't used the out-of-sample methodology.
How is it better? You can always find a combination of parameters that make you come up with a profitable system, once you know the past. The only way you can prevent yourself from cheating and finding that profitable combination is to keep a part of your sample hidden. It is the same as filling the crosswords puzzles after looking at the answers and doing it without looking at the answers. If you know the whole sample, and you optimize any parameter, it is like cheating. Trust me, I have seen plenty of systems that looked and felt excellent fail throughout the out-of-sample, whereas they had succeeded throughout the in-sample.
The out-of-sample obtained system could still be a brute-forcing combination, but the probability then goes from 100 trials to just 1. You have a set of parameters that work on the in-sample, you think they are good and balanced and you decide they are final. Then you test it on the out-of-sample. If it works, it could still be "lucky", but not as much as if you had tested 100 or more different combinations on it. So you practically reduce the risk by 99%, at least.
Good luck with your testing. As far as you told me, I think you're doing it right.
Yes, that is likely the case. The next thing is asking my father, who had told me he'd give me the money. Who knows if he'll still be eager to do that, once he sees my equity curve going from 37k to zero. Then there's another guy who had told me he was interested. I could do both at the same time. Maybe I'd only ask my dad 30k, and do 100k for that other person. Or maybe neither will give me any money. Or maybe the investors will stick to my systems, despite their awful performance of the last 4 weeks.
[...]
Losing 10k for the day. In one day we're losing more than we ever lost before. Anyway. Now we're at -3000. It is definitely all over as soon as the backers will decide so. Probably even today. This new combination had a max historical drawdown of 17k, a relativized max historical drawdown of 27k and it lost us already 40k. Enough reasons to reach "uncle point".
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It's a shame to hear the recent results Travis, however it seems like it's down to money management decisions as opposed to the trading performance of your systems. It would've been interesting to see how they fared longer term if a more conservative risk level was used. Good luck with your future trading.
Yamato
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welshguy121
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f----ing hell
bbmac
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Travis,
Whilst I said I wouldn't post to your blog again following what I considered to be your over-reaction to some genuinely meant comments in a previous constructive line of dialogue we were having on your journal, recent events have, probably against my better judgement (and at the risk of getting my head chewed off) persuaded me to post again.
First of all I am sorry to hear that the drawdown has impinged the agreement you have with your investor. I am sorry too that this happened whilst you are on holiday - it seems to be a double kick in the teeth. As an avid follower of your trading journal 1 and this 2, it must be a personal blow to you, the extent to which only you will truly know.
I have watched many 'retail' traders try to automate their trading and indeed have followed 3 quite closely, and these included - I have never seen anyone succeed over and above a trader who has made the alternative - discretionary trading, work for them. This is not to say that it has not been done or indeed that it will not be done at some point in the future or that you will not succeed too at some point in the future. Morevover you have come the closest that I have witnessed of any one. I suppose the growth of HFT (high frequency trading) algo's by large financial institutions with much higher R&D (Research & Development] and overal resource levels prove [or disprove] that it can be done ?
I understand if you do not wish to discuss it further but I will ask some questions and comment further and in so doing ask you to bear in mind that they are genuinely meant. I have absolutely no 'axe to grind' with you and your success or failure will have no bearing on my own future success/failure as our trading styles/methods are obviously very different, not least in the fact that I am a self-confessed discretionary trader (albeit within a tight framework of parametres that make up my trading edge) whereas the basis of your trading edge is mechanical.
1 a. Just as a refresher; after the new +37k gains account hi was reached I am right in saying that the investor quadrupled the trading margin available meaning that the new trading margin available was this and the retained 37k gains, at that time ?
b. With the introduction of this additional trading margin as described in 1 a. above - is this the time that you altered the combo of systems traded from that last combo that had achioved the +37k gains account hi ?
2 a. When the actual present drawdown (relitivised to the margin being traded ?) equalled 100% of the historical drawdown of that combination of systems traded did that set alarm bells ringing in your mind and were you tempted then to change the combo of systems traded ?
b. Following on from question 2 a. above, do you have a fixed rule that say's that once a new combination of systems is introduced then only at a new accound hi can this combo be changed ?
3 a. We discussed previously the correlations in your system portfolio and you recently replied to another poster that generally speaking your systems do better when € and Es are rising. In light of the present drawdown and the known (and unknown) correlations within your system portfolio do you now think that you were effectively placing the same bet over and over -or-
b. You are the victim to whatever extent of bad luck? -and/or-
c. You have suffered from Insufficiently robust money management given that 'out of sample' future trading tends to perform worse than 'in sample' back testing ?
4. Given the known (and unknown/currently undiscovered ) correlations in your system portfolio, are you still confident in it or are there systems you will add / dump within it for any future trading ?
5. Are you still confident in your methodology for picking the combination of systems that are traded from the system portfoio ?
and finally
6. If not already covererd in your replies to the above, what do you take as the lessons from the experience ?
7. Do your goals/aims remain the same ?
However you decide to reply to this post (or not) I hope you can find a way to move forward, and equally hope you continue to enjoy the rest of your holiday.
BBmac.
Whilst I said I wouldn't post to your blog again following what I considered to be your over-reaction to some genuinely meant comments in a previous constructive line of dialogue we were having on your journal, recent events have, probably against my better judgement (and at the risk of getting my head chewed off) persuaded me to post again.
First of all I am sorry to hear that the drawdown has impinged the agreement you have with your investor. I am sorry too that this happened whilst you are on holiday - it seems to be a double kick in the teeth. As an avid follower of your trading journal 1 and this 2, it must be a personal blow to you, the extent to which only you will truly know.
I have watched many 'retail' traders try to automate their trading and indeed have followed 3 quite closely, and these included - I have never seen anyone succeed over and above a trader who has made the alternative - discretionary trading, work for them. This is not to say that it has not been done or indeed that it will not be done at some point in the future or that you will not succeed too at some point in the future. Morevover you have come the closest that I have witnessed of any one. I suppose the growth of HFT (high frequency trading) algo's by large financial institutions with much higher R&D (Research & Development] and overal resource levels prove [or disprove] that it can be done ?
I understand if you do not wish to discuss it further but I will ask some questions and comment further and in so doing ask you to bear in mind that they are genuinely meant. I have absolutely no 'axe to grind' with you and your success or failure will have no bearing on my own future success/failure as our trading styles/methods are obviously very different, not least in the fact that I am a self-confessed discretionary trader (albeit within a tight framework of parametres that make up my trading edge) whereas the basis of your trading edge is mechanical.
1 a. Just as a refresher; after the new +37k gains account hi was reached I am right in saying that the investor quadrupled the trading margin available meaning that the new trading margin available was this and the retained 37k gains, at that time ?
b. With the introduction of this additional trading margin as described in 1 a. above - is this the time that you altered the combo of systems traded from that last combo that had achioved the +37k gains account hi ?
2 a. When the actual present drawdown (relitivised to the margin being traded ?) equalled 100% of the historical drawdown of that combination of systems traded did that set alarm bells ringing in your mind and were you tempted then to change the combo of systems traded ?
b. Following on from question 2 a. above, do you have a fixed rule that say's that once a new combination of systems is introduced then only at a new accound hi can this combo be changed ?
3 a. We discussed previously the correlations in your system portfolio and you recently replied to another poster that generally speaking your systems do better when € and Es are rising. In light of the present drawdown and the known (and unknown) correlations within your system portfolio do you now think that you were effectively placing the same bet over and over -or-
b. You are the victim to whatever extent of bad luck? -and/or-
c. You have suffered from Insufficiently robust money management given that 'out of sample' future trading tends to perform worse than 'in sample' back testing ?
4. Given the known (and unknown/currently undiscovered ) correlations in your system portfolio, are you still confident in it or are there systems you will add / dump within it for any future trading ?
5. Are you still confident in your methodology for picking the combination of systems that are traded from the system portfoio ?
and finally
6. If not already covererd in your replies to the above, what do you take as the lessons from the experience ?
7. Do your goals/aims remain the same ?
However you decide to reply to this post (or not) I hope you can find a way to move forward, and equally hope you continue to enjoy the rest of your holiday.
BBmac.
Yamato
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Replying as I read.
Yes, good idea to post again. Bring it on.
Yes, we have another 5k to go (down). Still not over. Maybe we'll recover.
It's not a personal blow, as I said, because I am on vacation, so I can pretty much accept anything while I am on vacation. There's no other burdens. No neighbour bitch slamming her door, no colleagues bothering me... everything is perfect. Except for the trading. So I can easily accept it.
I read that you have not seen automated traders being profitable more than discretionary traders. That's interesting because recently an Italian trader, friend of mine, told me that he thinks there are no profitable discretionary traders, while there are a lot of profitable automated traders.
Thanks for telling me that I have come the closest. Yes, that equity curve of mine looked quite good indeed. But not anymore.
Are you saying the large financial institutions can do it? I don't understand the sentences in this paragraph. If you say so, then I agree. They have more resources. But then again, they have a lot of idiots bothering the good people, so they might fail because of the idiots distracting the good people and interfering with their work. As a rule, the boss is an idiot. So the little guy at that company has to try and succeed at this despite being under the idiot boss. So I don't know if they're really going to make it happen.
Yes, good summary: the basis of my trading edge is mechanical. If I interfere with that at all, the consequence will be and has been the blowing out of my account. Which did not happen in this case, since we're only talking about losing the profit made by the systems.
Ok, let's answer your questions now.
1.
a. Yes, quadrupled margin, and given that margin is kept separate from profit, there was 4 times as much margin, plus the 37k of profit, which is now totally gone. The profit was left on the account, to avoid any misunderstandings.
b. Yes, this is all correct. I must add that "altering" does not mean that I disabled the previous combination, but that I simply added more systems/contracts to those being traded with the previous combination.
2.
a. "Relativized" means for me that (as explained before) if there's a bunch of losses on a system when CL was at 30 and today CL is at 90, then we have to multiply that drawdown by 3, and we get the relativized drawdown (by today's prices). There were no alarms set off in anyone's minds. We stick to a combination until the death. We're not tempted to do anything. That's what I learned this year. Once chosen, you keep trading it until you move on to a bigger combination, until you are wiped out, or until one systems clearly fails (tripling its max drawdown or so), in which case you remove it, but even that process is slow. We've never said "oh, damn, we lost 5k because of this system today - let's disable it".
b. No, there's no such rule. We proceeded according to margin available and profit cushion (the profit made has to cover the potential losses). This time we did something wrong (scaled up without a big enough cushion), or, more likely, my combination of systems was not a good one. That's why I don't feel bad: it was largely my fault. But even better: I gave it my best, so it was even more bad luck than my fault. Well... These were the causes in a descending order of importance: 1) my fault in selecting the combination (e.g.: should not have included silver), 2) bad luck, 3) scaled up too fast (without an adequate cushion).
3.
a. I don't understand the concept of "placing the same bet over and over". I have been swimming too much to understand this complex concept right now. There's water in my brain. Seawater. If you're getting at the concept that we should not have invested when the EUR and ES were going down, then my answer is: how do we know if and when and how long they will go down? If we did, the easiest way to make money would be to simply trade those two futures, long and short.
b. Yes, to some extent, as I said before, we're victims of 1) bad luck, 2) scaling up too fast.
To summarize my reasoning until here, I would say that this combination, in time, will make money, but it definitely sucked for one long month, and our cushion was not big enough to cover the potential drawdown. I also have to admit: my systems are not that good. And I was not that good at picking a good combination. I was affected by wishful thinking to some extent. I was not expecting the worst of the worst to happen as soon as we started trading the new combination.
4. If I were given the opportunity to trade again, with someone else's capital I guess, because I have none, I would keep all the things I have learned, all the workbooks I have built this year, and all the concepts I have developed (often with the coaching of investors). It was all good. No regrets. The extra thing I know is that my systems suck really bad, and you're never too picky in choosing what you will trade. And that if the past showed a 27k relativized max drawdown, you should be ready to witness a 54k drawdown as soon as you start trading.
I don't want to admit it, but deep inside, I feel I have not selected the right combination of systems. Many of the new systems I have enabled have been excellent in back-testing, but that is still not good enough. I have broken my rule of only enabling systems that have been good both in back-testing and forward-testing. This is my fault. It's all my fault. No one to blame. If anything, I should apologize for this part of my work, which was not good.
5. My confidence is shattered, because as I just said, I have not followed my rule due to feeling an urge to make money, suffering from wishful thinking... I am not self-sufficient. My confidence is so shattered that I either need someone to be a pessimist for me, or I won't be confident to trade anyone's money. I am not equipped with all that's needed to trade anyone's capital right now. Luckily this time I only blew a lot of profit but no accounts. It is an improvement.
6. Yes, it was covered, but I can write more about the lessons learned. This year has taught me a lot. Some coached, and some not. It was mostly my work, but many insights were given to me, through questions, recommendations, examples and similar. So this year was not one lesson but a college degree in money management and back-testing. The final lesson, of this last month and drawdown, was that even the best people, even those who teach you discipline and money management are affected by success and by a rising equity line. They will relax and trust you with your choices, but then, if you're affected by wishful thinking, you're all going to be screwed, because they trust you given your equity line, but you're a bit too optimistic to be trusted. Then disaster happens.
"Disaster" means that we'll stop trading. The truth is that I don't think this combination is unprofitable, but just that it is having a long drawdown. But I have no way to prove it. I cannot expect people to lose all their money to prove my point. I could also be wrong. I already know for a fact that I was wrong in expecting this combination to be better than it is. This is a huge and unexpected drawdown.
7. My goals now are much smaller. If I'll be dropped, as could be expected, I'll be glad to manage 30k from my father. And I'll be glad to keep all the profit. With 30k I can trade very few systems, so I'll easily be picky in picking them. I will be able to trade 20 systems or so, and of course I'll pick the best 20. With this latest capital I had, I was able to enable 50 of them, and maybe I just do not have 50 excellent systems, but just 30, and one should not trade systems that are not excellent, because what have been excellent systems until today will be pretty good systems tomorrow.
Thanks for the wishes.
Yes, good idea to post again. Bring it on.
Yes, we have another 5k to go (down). Still not over. Maybe we'll recover.
It's not a personal blow, as I said, because I am on vacation, so I can pretty much accept anything while I am on vacation. There's no other burdens. No neighbour bitch slamming her door, no colleagues bothering me... everything is perfect. Except for the trading. So I can easily accept it.
I read that you have not seen automated traders being profitable more than discretionary traders. That's interesting because recently an Italian trader, friend of mine, told me that he thinks there are no profitable discretionary traders, while there are a lot of profitable automated traders.
Thanks for telling me that I have come the closest. Yes, that equity curve of mine looked quite good indeed. But not anymore.
Are you saying the large financial institutions can do it? I don't understand the sentences in this paragraph. If you say so, then I agree. They have more resources. But then again, they have a lot of idiots bothering the good people, so they might fail because of the idiots distracting the good people and interfering with their work. As a rule, the boss is an idiot. So the little guy at that company has to try and succeed at this despite being under the idiot boss. So I don't know if they're really going to make it happen.
Yes, good summary: the basis of my trading edge is mechanical. If I interfere with that at all, the consequence will be and has been the blowing out of my account. Which did not happen in this case, since we're only talking about losing the profit made by the systems.
Ok, let's answer your questions now.
1.
a. Yes, quadrupled margin, and given that margin is kept separate from profit, there was 4 times as much margin, plus the 37k of profit, which is now totally gone. The profit was left on the account, to avoid any misunderstandings.
b. Yes, this is all correct. I must add that "altering" does not mean that I disabled the previous combination, but that I simply added more systems/contracts to those being traded with the previous combination.
2.
a. "Relativized" means for me that (as explained before) if there's a bunch of losses on a system when CL was at 30 and today CL is at 90, then we have to multiply that drawdown by 3, and we get the relativized drawdown (by today's prices). There were no alarms set off in anyone's minds. We stick to a combination until the death. We're not tempted to do anything. That's what I learned this year. Once chosen, you keep trading it until you move on to a bigger combination, until you are wiped out, or until one systems clearly fails (tripling its max drawdown or so), in which case you remove it, but even that process is slow. We've never said "oh, damn, we lost 5k because of this system today - let's disable it".
b. No, there's no such rule. We proceeded according to margin available and profit cushion (the profit made has to cover the potential losses). This time we did something wrong (scaled up without a big enough cushion), or, more likely, my combination of systems was not a good one. That's why I don't feel bad: it was largely my fault. But even better: I gave it my best, so it was even more bad luck than my fault. Well... These were the causes in a descending order of importance: 1) my fault in selecting the combination (e.g.: should not have included silver), 2) bad luck, 3) scaled up too fast (without an adequate cushion).
3.
a. I don't understand the concept of "placing the same bet over and over". I have been swimming too much to understand this complex concept right now. There's water in my brain. Seawater. If you're getting at the concept that we should not have invested when the EUR and ES were going down, then my answer is: how do we know if and when and how long they will go down? If we did, the easiest way to make money would be to simply trade those two futures, long and short.
b. Yes, to some extent, as I said before, we're victims of 1) bad luck, 2) scaling up too fast.
To summarize my reasoning until here, I would say that this combination, in time, will make money, but it definitely sucked for one long month, and our cushion was not big enough to cover the potential drawdown. I also have to admit: my systems are not that good. And I was not that good at picking a good combination. I was affected by wishful thinking to some extent. I was not expecting the worst of the worst to happen as soon as we started trading the new combination.
4. If I were given the opportunity to trade again, with someone else's capital I guess, because I have none, I would keep all the things I have learned, all the workbooks I have built this year, and all the concepts I have developed (often with the coaching of investors). It was all good. No regrets. The extra thing I know is that my systems suck really bad, and you're never too picky in choosing what you will trade. And that if the past showed a 27k relativized max drawdown, you should be ready to witness a 54k drawdown as soon as you start trading.
I don't want to admit it, but deep inside, I feel I have not selected the right combination of systems. Many of the new systems I have enabled have been excellent in back-testing, but that is still not good enough. I have broken my rule of only enabling systems that have been good both in back-testing and forward-testing. This is my fault. It's all my fault. No one to blame. If anything, I should apologize for this part of my work, which was not good.
5. My confidence is shattered, because as I just said, I have not followed my rule due to feeling an urge to make money, suffering from wishful thinking... I am not self-sufficient. My confidence is so shattered that I either need someone to be a pessimist for me, or I won't be confident to trade anyone's money. I am not equipped with all that's needed to trade anyone's capital right now. Luckily this time I only blew a lot of profit but no accounts. It is an improvement.
6. Yes, it was covered, but I can write more about the lessons learned. This year has taught me a lot. Some coached, and some not. It was mostly my work, but many insights were given to me, through questions, recommendations, examples and similar. So this year was not one lesson but a college degree in money management and back-testing. The final lesson, of this last month and drawdown, was that even the best people, even those who teach you discipline and money management are affected by success and by a rising equity line. They will relax and trust you with your choices, but then, if you're affected by wishful thinking, you're all going to be screwed, because they trust you given your equity line, but you're a bit too optimistic to be trusted. Then disaster happens.
"Disaster" means that we'll stop trading. The truth is that I don't think this combination is unprofitable, but just that it is having a long drawdown. But I have no way to prove it. I cannot expect people to lose all their money to prove my point. I could also be wrong. I already know for a fact that I was wrong in expecting this combination to be better than it is. This is a huge and unexpected drawdown.
7. My goals now are much smaller. If I'll be dropped, as could be expected, I'll be glad to manage 30k from my father. And I'll be glad to keep all the profit. With 30k I can trade very few systems, so I'll easily be picky in picking them. I will be able to trade 20 systems or so, and of course I'll pick the best 20. With this latest capital I had, I was able to enable 50 of them, and maybe I just do not have 50 excellent systems, but just 30, and one should not trade systems that are not excellent, because what have been excellent systems until today will be pretty good systems tomorrow.
Thanks for the wishes.
Yamato
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Here's the situation up to yesterday's trades:
It is really interesting, isn't it.
I've analyzed the trades by systems, and we can't really blame this on one system. It's not like I can say "if only I hadn't enabled this system...". All systems on all symbols lost a ****load of money at the same time.
We're still in the game by the way, but only have fuel for one or two more days. If it keeps falling, it's all over.
My only hope now is that, since the duration of the previous peak-to-trough falls was under a month, this one, too, should be about to end.
It is really interesting, isn't it.
I've analyzed the trades by systems, and we can't really blame this on one system. It's not like I can say "if only I hadn't enabled this system...". All systems on all symbols lost a ****load of money at the same time.
We're still in the game by the way, but only have fuel for one or two more days. If it keeps falling, it's all over.
My only hope now is that, since the duration of the previous peak-to-trough falls was under a month, this one, too, should be about to end.
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bbmac
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Thank you for your comprehensive response. I understand the emotions you are feeling right now and that it is very disappointing at this stage, particularly given the work you have put into the project and what it represents to you in terms of your personal goals etc. I tend to agree with your summation of the current situation and the effect of a wrong/unlucky choice of system combo , scaling up too fast (insufficient profit cushion ) and general bad luck. I do however think there may be steps you can take to prevent this from happening again over and above not breaking your own rules ['...of only enabling systems that have been good both in back-testing and forward-testing...'] and better money management. There is nothing any of us can do about luck !
I have placed in italics some parts of your reply that I found interesting. My further comments that explain my thoughts in the respect above, are below each point:
I read that you have not seen automated traders being profitable more than discretionary traders. That's interesting because recently an Italian trader, friend of mine, told me that he thinks there are no profitable discretionary traders, while there are a lot of profitable automated traders.
I have personally seen the account statements of profitable discretionay traders but to this date have not seen any from automated/mechanical traders.
Are you saying the large financial institutions can do it?
I have no first hand evidence of this but I assume so given the press it has had ?
I don't understand the concept of "placing the same bet over and over".
What I guess I am getting at here is that you knew of the general correlations effect of your systems portfolio ie that they did better with Eur and Es rising rather than falling. On a basic level, some instruments are correlated either directly or inversely, for eg there exists a high direct correlation between eurusd and gbpusd and an even higher inverse correlation between eurusd and usdchf. Even amongst trading instruments of differing asset classes for eg there exist correlations usdcad and oil for eg.
So, when you have a large portfolio of trading systems trading disparate trading instruments there will be known corelations and unknown/undiscovered correlations and in general you knew that in general the portflio was correlated with Eur and E's fortunes...when these fell, generally speaking, - so did your equity line...any precipitous fall in thesee instruments would therefore result in a correspondingly bad fall in your equity line.
Why then were you happy to continue in this knowledge ? Ie why did you not seek to better hedge your portfolio to result in it being more balanced and therefore be more cushioned against say a 1000+ pip fall in Eur over the last 10 days ? (see pic below.) The fundamental environment re the Eur has been precarious to say the least in this period, what with Sovereign debt problems and contagion etc, was this fall in the Eur more probable than not at some point given this environment ?
I also have to admit: my systems are not that good. And I was not that good at picking a good combination. I was affected by wishful thinking to some extent. I was not expecting the worst of the worst to happen as soon as we started trading the new combination.
This is a startling revelation about your systems. We have disagreed before about whether you are picking the system combo to be traded discretionarilly or as you might prefer to call it - with an evolving intelligent methodology for doing so. It could be argued that the discretionary changing of the system combo - at the new account high has in part done for the then +37k equity line, ie that the old discretionary demon that has blighted your manual trading in the past has struck again.
Whatever the case I understand your point about wishful thinking and it illustrates perfectly why trading is so hard...the emotions required in certain situations often run counter to natural human emotions. In short text; When we need to fear it is the more natural human emotion to hope, and when we need to hope it is the more natural human emotion to fear.
If I were given the opportunity to trade again, with someone else's capital ........The extra thing I know is that my systems suck really bad, and you're never too picky in choosing what you will trade. And that if the past showed a 27k relativized max drawdown, you should be ready to witness a 54k drawdown as soon as you start trading.
I think you are right about the drawdown in the forward sample versus what is seen in any back sample. Before my trading career began in earnest I was involved in horse racing and when I came across a system/methodology that had an LLR (longest losing run) of say 10 I would double it and add 1/2 again (25) and that divided into the available bank would give the new level/unit stakes for laying/backing accordingly. In other words my 'drawdown cushion' was an extra 150% to what had been experienced before in it's known history.
As for the way you pick the actual combination of systems for trading at any given time, notwithstanding the intelligent and well reasoned way you went about this, it probably still requires work and/or more good luck ?
Things may well turn around with this investor ie you may not suffer further drawdown below the +37k gains but the probibility now is against that outcome. You are right to plan the future, and learn the lessons of this episode.
BBmac.
I have placed in italics some parts of your reply that I found interesting. My further comments that explain my thoughts in the respect above, are below each point:
I read that you have not seen automated traders being profitable more than discretionary traders. That's interesting because recently an Italian trader, friend of mine, told me that he thinks there are no profitable discretionary traders, while there are a lot of profitable automated traders.
I have personally seen the account statements of profitable discretionay traders but to this date have not seen any from automated/mechanical traders.
Are you saying the large financial institutions can do it?
I have no first hand evidence of this but I assume so given the press it has had ?
I don't understand the concept of "placing the same bet over and over".
What I guess I am getting at here is that you knew of the general correlations effect of your systems portfolio ie that they did better with Eur and Es rising rather than falling. On a basic level, some instruments are correlated either directly or inversely, for eg there exists a high direct correlation between eurusd and gbpusd and an even higher inverse correlation between eurusd and usdchf. Even amongst trading instruments of differing asset classes for eg there exist correlations usdcad and oil for eg.
So, when you have a large portfolio of trading systems trading disparate trading instruments there will be known corelations and unknown/undiscovered correlations and in general you knew that in general the portflio was correlated with Eur and E's fortunes...when these fell, generally speaking, - so did your equity line...any precipitous fall in thesee instruments would therefore result in a correspondingly bad fall in your equity line.
Why then were you happy to continue in this knowledge ? Ie why did you not seek to better hedge your portfolio to result in it being more balanced and therefore be more cushioned against say a 1000+ pip fall in Eur over the last 10 days ? (see pic below.) The fundamental environment re the Eur has been precarious to say the least in this period, what with Sovereign debt problems and contagion etc, was this fall in the Eur more probable than not at some point given this environment ?
I also have to admit: my systems are not that good. And I was not that good at picking a good combination. I was affected by wishful thinking to some extent. I was not expecting the worst of the worst to happen as soon as we started trading the new combination.
This is a startling revelation about your systems. We have disagreed before about whether you are picking the system combo to be traded discretionarilly or as you might prefer to call it - with an evolving intelligent methodology for doing so. It could be argued that the discretionary changing of the system combo - at the new account high has in part done for the then +37k equity line, ie that the old discretionary demon that has blighted your manual trading in the past has struck again.
Whatever the case I understand your point about wishful thinking and it illustrates perfectly why trading is so hard...the emotions required in certain situations often run counter to natural human emotions. In short text; When we need to fear it is the more natural human emotion to hope, and when we need to hope it is the more natural human emotion to fear.
If I were given the opportunity to trade again, with someone else's capital ........The extra thing I know is that my systems suck really bad, and you're never too picky in choosing what you will trade. And that if the past showed a 27k relativized max drawdown, you should be ready to witness a 54k drawdown as soon as you start trading.
I think you are right about the drawdown in the forward sample versus what is seen in any back sample. Before my trading career began in earnest I was involved in horse racing and when I came across a system/methodology that had an LLR (longest losing run) of say 10 I would double it and add 1/2 again (25) and that divided into the available bank would give the new level/unit stakes for laying/backing accordingly. In other words my 'drawdown cushion' was an extra 150% to what had been experienced before in it's known history.
As for the way you pick the actual combination of systems for trading at any given time, notwithstanding the intelligent and well reasoned way you went about this, it probably still requires work and/or more good luck ?
Things may well turn around with this investor ie you may not suffer further drawdown below the +37k gains but the probibility now is against that outcome. You are right to plan the future, and learn the lessons of this episode.
BBmac.
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new_trader
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Travis,
Sorry about your losses, but until this point you were the only member of this forum who changed my opinion about mechanical trading. This equity curve exemplifies my own experience many years ago (though not to the same degree) and what I believe everyone who goes down the mechanical route will experience sooner or later. This is why I am a purely discretionary trader and why I am certain it is the only way to attain true financial success. I have never looked back on mechanical trading and never will. Best of luck whatever you decide.
bbmac
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Good to know you are 'still in the game' but as the drawdown has proved - the future tends to be worst than the past, ie results in the future sample are worst than those in the back sample/test...so hoping that the drawdown will end because the previous d/downs ended under a month exemplifies the point I make in my post above about hope being the natural human emotion over what it should more sensibly be in this situation: ie fear that it will not.
Anything can happen, and I too hope you are right (!) - but I can hope because the outcome will not affect me.
G/L
Anything can happen, and I too hope you are right (!) - but I can hope because the outcome will not affect me.
G/L
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